Line In The Sand

For the bulls we are quickly approaching a line in the sand that must not be breached. If we breach the May 6 lows things will get out of hand quickly. We have pushed down quite hard and an updated wave count is needed – we have a line in the sand, and for the first time in a long time it’s one for the bulls 🙂

Soylent Green is still a possibility but it dropped from 50% last night to about 20% as of right now. The line in the sand that can’t be breached is 1065.89 – a drop through that would immediately relegate Soylent Green to the dustbin of history. But do not think there is no chance and that a further drop is guaranteed – I have seen very deep c waves and in my time. We are already seeing a bullish divergence on the Zero Lite – and remember, tomorrow is OPX day 😉

After my Soylent Green warning last night I actually kept on plugging and figured out a few more things. One of which was that the proper currency pair to watch is not the EUR/USD but this:

This is the 30min version but I usually look at the 5min version intra-day. In any case, it seems that the EUR/JPY is really where the action is as it matches the ES futures’ gyrations almost to a wiggle. And if you look for today’s drop you won’t find it in the EUR/USD – but you see it most definitely in the EUR/JPY.

12:46pm EDT: I have to make a very important point. Here I was pimping the EUR/USD correlation all week and after some additional digging it turns out that the ES futures follow the EUR/JPY a lot closer. And that has a big impact on the entire picture as it takes the Dollar out of the equation – well, theoretically, I don’t want to jump onto a new conclusion right away. But consider this – all it would take is a continuous drop in the JPY for ES (and equities) to potentially drop further, even if the Dollar corrects downward. I have to dig around to see how shot to hell the EUR/JPY is but it comes to show the one thing I keep preaching to everyoe: Don’t trade correlations – they at best serve as a bias.

So, in conclusion: I am glad that I proposed Soylent Green last night as it’s a perfectly valid scenario (the odds of which admittedly dropped this morning) but I need to reconsider if the DXY is the right instrument to follow when it comes to a correlation to equities and the index futures. Of course I keep on diggin on that end, and will follow up with an appropriate update. Sorry if I can’t offer more right now – the best I have right now is the chart above – keep watching the EUR/JPY for possible clues. And the Zero of course 😉

Closing Bell – EOD Wrap Up: I just came back from a meeting 20 minutes ago and was surprised to not see more of a push back. Especially in the context of today’s EUR/JPY gyrations:

After the close we were pretty shot to hell on the EUR/JPY – at least short term. As expected there was a retracement and when I saw a bullish divergence on the Zero Lite I thought it would follow suit. But to my surprise (and general amusement) the bulls were unable (or maybe unwilling) to buy the dip and run after the EUR/JPY nor the EUR/USD, both of which pushed upward.

That’s how things looked like on the Zero and Zero Lite. You can see the divergence I mentioned and an attempt to ramp things above VWAP is being made – but ultimately fails.

Situation is looking pretty bearish here – we are but five handles away from Soylent Green biting the dust forever – as of right I give that scenario maybe 5%. I would completely throw it out weren’t it for OPX Friday tomorrow – trust me, I literally have seen horses puke on OPX Fridays. But today’s signal looks real – you can’t fake that type of bearish momentum. If the signal was flat I would give Soylent Green 10%-15% – but as it is right now the bulls are short of getting manhandled Sing Sing style.

Cheers,

Mole